Just to update my issue here as it was more complicated then I thought. Here's a reference to the issue. It has nothing to with xml links or spacing. It's actually working links that it fails to render, incorrect links to error pages work fine. (confusing? I know, right?) The javascript solution didn't work for me b/c I need it to work with Outlook 2007. What finally worked was reversing the slashes e.g.
http:\\sharepoint